TTM07310 - The Ring Fence: Transfer pricing

The transfer pricing provisions in ICTA88/SCH28AA (as described in TTM07300) will applyto a transaction (i.e. a provision made or imposed) between a tonnage tax company and another person if:

the tonnage tax company entered in to the transaction as part of its tonnage tax trade (so that any income or expenditure arising will not be taken into account in computing its taxable profits), and

the other person did not enter into the transaction as part of a tonnage tax trade (so that any income or expenditure arising will be taken into account in computing its taxable profits).

In particular, the ‘basic rule on transfer pricing’ described in ICTA88/SCH28AA/PARA1 applies to transactions across the tonnage tax ring fence. Broadly speaking, this means that no transfer pricing adjustment will fall to be made unless:

the two companies are connected (as defined in Sch 28AA), and

the transaction was not on arms length terms, and

the transaction confers a potential advantage in relation to UK taxation on one or both of the companies.